Morningstar DBRS Confirms KeyBank's Commercial Mortgage Servicer Rankings

DBRS, Inc. (Morningstar DBRS) confirmed its MOR CS1 commercial mortgage primary servicer, master servicer, and special servicer rankings for KeyBank, N.A. (KeyBank or the Company), a wholly owned subsidiary of KeyCorp. The trend for the primary and master servicer rankings remains Stable. The trend for the special servicer ranking is changed to Negative from Stable.

The confirmed rankings reflect the following factors:

-- KeyBank's strong leadership team and professional depth. Additionally, the Company has proved its ability to seamlessly handle some manager retirements through succession planning, which has maintained operational stability and continuity. Employee turnover for primary/master servicing decreased to moderate levels over 2022-23 but moved higher in H1 2024. However, KeyBank's hiring efforts have largely filled the vacancies while increasing total headcount to ease workload levels.
-- A well-designed organizational structure that has remained constant over the years to effectively address the demands of a large and complex portfolio.
-- Thorough asset administration for commercial mortgage-backed securities (CMBS) transactions, government-sponsored enterprises (GSEs), and institutional investor clients. The Company had some lapsed UCC filings but stated that it remediated the issue and refiled all the affected statements without any loss of lien position.
-- The Company's expertise and capabilities to address servicing agreement compliance, complex cash management, and a high volume of credit-related consent requests.
-- High timeliness and accuracy rates year over year for investor reporting and remitting.
-- Expertise with CMBS master servicer advancing as well as comprehensive subservicer oversight and auditing practices.
-- An integrated and robust technology platform for servicing and special servicing. The Company continues to enhance its proprietary borrower and investor portals and asset management/workflow application. Process automation includes robotics/machine-learning tools and client-facing application interfaces.
-- A multifaceted audit and compliance regimen that encompasses annual audits from parent bank KeyCorp, System and Organization Controls 1 (Type II) reports, GSE-led reviews, Regulation AB attestations, and a risk-management/control program. All issued audits and reviews completed this year have had satisfactory results.

As a special servicer, KeyBank has well-experienced asset managers, efficient workflow, and controlled approval practices, and a lengthy, successful asset resolution record for CMBS, GSE, and other third-party clients. The changed trend for the special servicer ranking reflects the Company's increased workload ratios, which are generally above its peers. The portfolio's large concentration of multifamily loans may allow for more loans per asset manager, and KeyBank has added asset managers in the past year. However, when combined with an elevated level of employee turnover that has persisted, KeyBank's total personnel for special servicing has remained flat, while its active portfolio has continued to grow, especially by property count. Accordingly, KeyBank noted that it has requisitions to hire additional asset managers.

As of June 30, 2024, KeyBank's total primary and master servicing portfolio contained 21,593 loans with an aggregate $474.11 billion unpaid principal balance (UPB). The portfolio included 504 CMBS transactions, 458 Freddie Mac-sponsored securitizations, and encompassed 28 subservicers. CMBS loans accounted for approximately 34% of the total portfolio by UPB and 29% by loan count. Freddie Mac loans (including nonsecuritized) accounted for approximately 26% of the total portfolio by UPB and 30% by loan count. KeyBank also was the servicer for 26 commercial real estate collateralized loan obligation (CRE CLO) transactions with a combined 658 loans and $20.25 billion UPB.

As of June 30, 2024, KeyBank was the named special servicer for 13,069 loans with a total UPB of approximately $228.36 billion involving 446 transactions (166 CMBS transactions, 210 Freddie Mac-sponsored securitizations, 14 CRE CLOs, and 56 specialized, asset-backed, or whole-loan transactions). The active special servicing portfolio contained 291 assets (278 loans and 13 REO properties) with a combined $5.50 billion UPB. By asset count, 97% were in securitized transactions. By comparison, as of YE2023, the active special servicing portfolio contained 247 assets with a total UPB of $4.60 billion.

All rankings are subject to surveillance, which could result in rankings being raised, lowered, placed under review, confirmed, or discontinued by Morningstar DBRS.

Morningstar DBRS North American commercial mortgage servicer rankings are not credit ratings. Instead, they are designed to evaluate the quality of the parties that service commercial mortgage loans. Although the servicer's financial condition contributes to the applicable ranking, its relative importance is such that a servicer's ranking should never be considered as a proxy of its creditworthiness.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283.

For more information on this industry, visit http://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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